Liz’s view
Ted Pick is dropping breadcrumbs.
Morgan Stanley’s CEO plopped a telling line into Wednesday’s earnings call: “We are, as a discipline, constantly evaluating potential inorganic opportunities to expand in attractive geographies, bolt on new capabilities, add new client relationships.”
Don’t be thrown off by the CEO-speak. Pick’s comments weren’t in response to a niggling analyst question but in his prepared remarks, a clear signpost. He learned the art of direction from his predecessor, James Gorman, whose habit of telegraphing his M&A ambitions stood out among CEOs trained to hide their hand — and was appreciated by investors who always knew where he was headed. Pick sounds a lot like Gorman in the months before he bought E*Trade and Eaton Vance in 2020, two deals that cemented Morgan Stanley’s reputation as Wall Street’s best acquirer. (Even Jamie Dimon has had some duds.)
That credibility earns Morgan Stanley the right to take big swings. With a market cap that has doubled over two years to $360 billion, Pick can afford them.
This former Morgan Stanley beat reporter has a few ideas, starting with Schwab.
Schwab would bolster Morgan Stanley’s crown jewel, its $8 trillion wealth-management arm. It would repeat the E*Trade playbook of buying young, self-directed customers and funneling them up the advice chain, but at 10 times the scale: Schwab has 46.5 million client accounts plus more than half of the financial advisory custody market, which is an inroad to millions more. The regulatory path might be tricky, but now is the time to try.
Voya would plug Morgan Stanley’s conspicuous hole in retirement products. And as Rohan scoops this morning, the 401(k) recordkeeper is already garnering takeover interest, and has an activist investor pushing it to sell.
T. Rowe Price is a bigger bite, but brings its dominance inside Americans’ 401(k) plans, plus $1.6 trillion in assets that would double the size of Morgan Stanley’s asset-management arm. Fidelity is the dream target in this space, but unless Abigail Johnson is keen to sell the family business, Morgan Stanley will have to look elsewhere for that combination.
iCapital controls the plumbing for the private assets that clients are clamoring for. Morgan Stanley is in the middle of a private-markets push and just dropped the velvet rope to make its $1 billion flagship fund open to more investors.
Carta manages the cap tables of 35,000 startups, which would feed Morgan Stanley’s IPO business (many of those startups will go public) and wealth business (they’ll mint new millionaires when they do).
UBS is the big one. A deal would solve the Swiss bank’s regulatory standoff with its government, hand Morgan Stanley the Asian and European wealth businesses it lacks, and give UBS executive chair Colm Kelleher — once a leading candidate for the job Pick now holds — a tidy career-capper. Gorman’s handshake deal to buy UBS’s US wealth business fell apart in 2008. Pick could deliver that and more at the right price.
Jane Street is the long shot. It’s a target that does nothing to feed Morgan Stanley’s wealth business. But Pick is a Wall Street trader, and Jane Street earned a reported $40 billion in trading revenue last year — seven times what Morgan Stanley did. It would also bring a foothold in prediction markets that are encroaching on Wall Street’s trading turf and a $20 billion venture portfolio positioned to ride the AI wave.
When I trekked to 1585 Broadway one evening in February 2020 for Gorman to brief me on a takeover he planned to announce the next day, my second guess was E*Trade. (My first guess, too stupid to air here, got a chuckle.) So who knows? But Pick is on offense, with a sky-high stock to play with and a mandate to protect the firm’s reputation as Wall Street’s shrewdest buyer.
Notable
- Pick left another breadcrumb last month, noting the bank is “wide awake” to acquisition opportunities, Reuters reported.